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Advising on pension transfers

The PLSA has supported FCA proposals for more broadly based advice to people considering a transfer out of their DB scheme – but has raised concerns about how the FCA want the information presented.

The PLSA was responding to the FCA’s consultation Advising on Pension Transfers. The combination of pension freedom and high transfer values, plus increased concern over pension scams, had prompted the FCA to ask whether the current rules on advising on DB transfers are still fit for purpose.

The FCA had proposed:

requiring advice on DB transfers to include a personal recommendation;

a revised ‘starting assumption’ that retaining safeguarded benefits will likely be in most people’s interests and any recommendation to transfer must demonstrate that a transfer is in the client’s best interests; and

replacing the current requirement for a ‘Transfer Value Analysis’ with a more rounded assessment taking account of all relevant factors. This would include a ‘Transfer Value Comparison’ (TVC) – a graphical comparison of current benefits with the transfer value.

The starting point for the PLSA’s response is that DB pensions provide valuable benefits that should not be given up lightly. For most people, staying in the DB scheme will be the best course of action.

The PLSA agrees with the FCA’s argument that advice should be more broadly based. Members should consider their DB rights in the context of their overall circumstances, including other assets, debts, health, family circumstances and strength of their employer.

There is a risk that the new Transfer Value Comparison, which would focus the member’s attention on a single set of figures, could inadvertently lead to people taking decisions which are, in fact, quite narrowly based.

Combined with the high transfer values generated by current low interest rates, this could lead to more people transferring. The ‘TVC’ should be used in the context of the full range of factors.

There is a case for a fast-track ‘triage’ process for people with very simple cases (eg no other assets), for whom it is obvious that they should stay in their DB scheme.